Australia Opposition favours rate cuts over spending

SYDNEY:Australia's opposition Treasurer Joe Hockey, who is set to manage the economy if the minority government loses power, said on Monday he would look to the central bank to cut interest rates before turning to stimulus spending in a future downturn.

Hockey also pledged to deliver surplus budgets in each year in power, to pay down government debt.

In an interview with Reuters, Hockey said he was committed to an independent Reserve Bank ofAustralia, and would not change its mandate to target inflation at between 2 and 3 percent when it considers official interest rate moves.

Australian interest rates are currently at 4.25 percent, well above much ofEurope, theUnited StatesandJapan, where rates are between zero and 1 percent.

"We have amongst the highest central bank interest rates in the world," Hockey told Reuters, adding rate cuts were an effective way to stimulate the economy due to the number of Australians with mortgages.

"It is the first and best lever," he said. The level of interest rates is an extremely sensitive political issue inAustralia. About one in three Australian householders are buying their home, while another third own their home and one third rent.

An OECD report in late 2009 praisedAustralia's stimulus spending, worth 5.4 percent of GDP, for helping the country avoid recession during the global financial crisis.

The next election inAustraliais due in the second half of 2013, and polls show Hockey's Liberal Party would win easily. The government has a majority of just one seat, and could fall before the next election with a surprise by-election.

Hockey ruled out setting up a new sovereign wealth fund inAustraliaif he won power, and said he would not change the mandate of the existing Future Fund, which manages A$73 billion ($76 billion) and is used to fund government public service pensions.

However, Hockey said he would favour longer-term bonds, out to 30 years from the current 15 years, forAustralia's highly sought after triple-A rated government debt.